IRS Issues Additional Guidance on Form W-2 Reporting Requirements
On January 3, 2012, the Internal Revenue Service (IRS) issued Notice 2012-9, which restates and amends previous IRS guidance addressing the reporting requirements for employer-sponsored group health plan coverage under the Patient Protection and Affordable Care Act (PPACA). The IRS emphasized that this reporting to employees is for their information only - it does not change the tax treatment of employer-provided health coverage. As stated in a previous SGR Client Alert, effective for calendar years beginning on or after January 1, 2011, PPACA requires employers to report the aggregate cost of employer-sponsored health coverage on employees' Forms W-2. Previous IRS guidance made this new reporting requirement optional for all employers for 2011 Forms W-2 (generally provided to employees in January 2012).
Most employers must begin complying with these reporting requirements starting with the 2012 calendar year. That is, employees' 2012 Forms W-2 must reflect the aggregate cost of employer-provided health coverage. Notice 2012-9 provides clarification and additional details regarding these reporting requirements.
Clarifications Regarding "Small Employer" Exception and Dental and Vision Coverage
In Notice 2011-28, the IRS provided relief to certain small employers, making the Form W-2 reporting requirements optional until further guidance is issued. Notice 2012-9 confirms that filing is optional for employers who meet the "small employer" exception - employers who file fewer than 250 Forms W-2 for the preceding calendar year. Under the new guidance, if an employer filed fewer than 250 Forms W-2 only because the employer used an agent to file the Forms, the "small employer" exception does not apply.
Previous IRS guidance stated that the cost of dental or vision coverage is not included in the aggregate cost if such coverage is not integrated into a group health plan. Notice 2012-9 clarifies that the standard for determining whether coverage under a dental or vision plan is subject to the reporting requirement is based on the same standard for determining whether such benefits are considered "excepted benefits" under HIPAA. Generally, to be considered an excepted benefit under HIPAA, dental or vision benefits must be offered under a separate policy, certificate, or contract of insurance, and participants must have the right not to elect dental or vision coverage. If dental or vision coverage does not qualify as an "excepted benefit" under HIPAA, the cost of coverage under these benefits must be included in the aggregate cost of an employee's health coverage.
New Guidance Regarding the Reporting Requirements
Notice 2012-9 also provides clarification and new guidance regarding the Form W-2 reporting requirements, which have been formatted into a Q&A format to make the guidance easier to read. The Q&As cover general requirements, methods for reporting the cost of coverage on Forms W-2, definitions, types of coverage to be included, and calculation methods to be used in determining the cost of coverage. Some highlights include the following:
- Employers are not required to include the cost of coverage under an employee assistance plan (EAP), wellness program, or on-site medical clinic in the reportable amount, provided that the employer does not charge a premium for such types of coverage when a qualified beneficiary elects COBRA coverage.
- Employers may include the cost of coverage under programs that are not required to be included in the aggregate reportable amount, such as the cost of health coverage under a health reimbursement arrangement (HRA).
- Notice 2012-9 clarifies that the reporting requirement does not apply to health flexible spending accounts (FSAs) if the contributions are made only through salary reductions.
- The aggregate cost reported on an employee's Form W-2 for a calendar year does not need to be adjusted for any elections or notifications in the subsequent year that may have an effect on the cost of coverage in the earlier year (e.g., notice of a divorce in the earlier year). The aggregate cost for a calendar year reported on a Form W-2 may be based on the information available to the employer as of December 31 of the calendar year.
As further information, if an employer chooses to report health coverage on employees' 2011 Forms W-2, it may rely on this guidance or on prior IRS guidance. The new guidance in Notice 2012-9 is applicable until further guidance is issued. Any subsequent guidance will apply prospectively only and will not apply to any calendar year beginning within six months of the date guidance is issued. This means that employers may rely on this guidance for all 2012 Form W-2 reporting requirements.
IRS Notice 2012-9 can be accessed by clicking here.
For more information, please contact your SGR Executive Compensation and Employee Benefits counsel.